Shandong Dawn PolymerLtd's (SZSE:002838) Dividend Is Being Reduced To CN¥0.065

Shandong Dawn Polymer Co.,Ltd.'s (SZSE:002838) dividend is being reduced from last year's payment covering the same period to CN¥0.065 on the 28th of June. This means that the dividend yield is 0.7%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for Shandong Dawn PolymerLtd

Shandong Dawn PolymerLtd's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Shandong Dawn PolymerLtd's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Unless the company can turn things around, EPS could fall by 0.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 21%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Shandong Dawn PolymerLtd's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the dividend has gone from CN¥0.0521 total annually to CN¥0.065. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, Shandong Dawn PolymerLtd's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Shandong Dawn PolymerLtd's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Shandong Dawn PolymerLtd is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Shandong Dawn PolymerLtd has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is Shandong Dawn PolymerLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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